Non-Disparagement Obligations Act
On May 25, 2021, the Alabama governor signed legislation (HB 494) enacting the state’s Non-Disparagement Obligations Act, which allows contracts to include a requirement that its parties don’t disparage each other (a non-disparagement obligation). Under the act, a disparaging statement can apply to a person or business and:
- Discredits or detracts from their property, product, services, or business.
- Diminishes or depreciates them by directly or indirectly comparing them to anything undesirable, scandalous, criminal, or loathsome.
- Raises doubts or questions about the quality, integrity, honesty, or character of them or their affiliates.
- Discredits or detracts from the reputation of another’s character, property, product, or business by disclosing truthful but private information.
- Discredits or detracts from the reputation of another’s character, property, product, or business by disclosing truthful but non-public information, or information obtained through a fiduciary relationship that isn’t a protected trade secret.
- Is knowingly or recklessly made by someone that knows it was false or misleading and would cause specific loss.
Non-disparagement obligations can be for any agreed-to amount of time and put in any of the following:
- Written employment separation, termination, or post-employment settlement or release agreement;
- Written business relationship termination agreement; and
- Written settlement between parties to a legal dispute, at any time before, during, or after litigation.
The law is only enforceable when a contract contains the obligation, a disparaging statement is made by someone who isn’t permitted to, and the result of the statement is either damage to the target of disparagement or automatic damages are triggered. The contract also must be in writing, signed by all parties, and supported by adequate consideration.
The act includes affirmative defenses, enforcement, and is effective January 1, 2022.